GE stock recovers from lows as key CEO presentation nears

5 Min Read

By Lewis Krauskopf
NEW YORK, May 22 (Reuters) - A year ago, Jeff Immelt told
investors at an industry conference there was a "mismatch"
between the performance of company he led, General Electric Co
, and its stock price.
Immelt, whose departure as chief executive was announced
last June, proved prescient but perhaps not in the way he was
thinking: GE shares have declined 45 percent since that
conference and hit a nearly nine-year low in March.
On Wednesday, Immelt's successor as chief executive of the
industrial conglomerate, John Flannery, will make the case for
GE's investment potential at the same annual Electrical Products
Group investor conference in Longboat Key, Florida.
Flannery will have some momentum. The stock price has
climbed 20 percent since early April, and GE on Monday clinched
a deal to spin off its transportation unit.
But, at around $15.50 a share, the stock is still well in
the red for 2018, down 11 percent.
GE shares are trading at lower valuations than those of
other diverse manufacturers, with GE at 15.4 times forward
earnings estimates, compared with 17.3 times for United
Technologies Corp and 18 times for Honeywell
International Inc , according Thomson Reuters Datastream.
"If the company were healthy, the valuation would be very
attractive," said Peter Jankovskis, co-chief investment officer
at OakBrook Investments in Lisle, Illinois. "But to my eye,
there needs to be some more evidence to emerge before I would
step in."
GE's recent share bounce appear to stem from a few factors,
according to Jairam Nathan, an analyst at Daiwa Capital Markets
America.
The recent surge in oil prices stands to benefit GE's oil
and gas equipment and services business, which includes exposure
through its Baker Hughes oilfield services company.
GE also maintained its 2018 profit guidance in its first
quarter report on April 20, encouraging investors who also may
have been comforted by progress in Flannery's plan to divest $20
billion in assets as part of an overhaul, Nathan said.
It announced a $11.1 billion deal on Monday to merge its
transportation business with U.S. rail equipment manufacturer
Wabtec Corp , with GE and its shareholders owning just
over half of the combined business.
The deal involving the transportation unit, while a small
portion of GE overall, "is what we think investors want," said
Morningstar analyst Keith Schoonmaker. "Namely, they want a
simpler, more manageable conglomerate with healthier liquidity."
After rising 1.9 percent on Monday, GE shares were up
another 1 percent on Tuesday.
But a number of issues continued to cloud the outlook for
the stock, including the health of GE's massive power-generation
unit, whose profit tumbled last year, and uncertainty about any
lingering liabilities at the company including with its GE
Capital finance arm.
GE took a $6.2 billion fourth-quarter charge for
reevaluation of insurance assets, and sources said on Tuesday
that the company is working with investment bankers to find ways
to shed its insurance business.
DEBATE OVER DIVIDEND
Investors are also focused on whether GE can generate enough
cash flow to cover obligations, including its dividend, which
the company cut in half in November.
GE'S dividend yield of 3.15 percent ranks it ninth among the
30 Dow industrial components .
"The current dividend payout ratio remains too high for the
company to de-leverage over time simply from running its
business," JPMorgan analyst Stephen Tusa said in a research note
on Tuesday. Tusa, a longtime bear on the stock, rates it
"underweight" with a $11 price target.
However, William Blair analyst Nick Heymann, who rates the
stock "outperform," said he believes the dividend "remains
secure" and that the transportation deal "could be a critical
catalyst that shifts investor psychology about GE to a value
rather than a contrarian investment."
"Instead of how low GE’s shares might decline, investors are
likely to now focus on how long it might take for GE’s shares to
rebound," Heymann said in a research note on Tuesday.
(Reporting by Lewis Krauskopf; editing by Alden Bentley and
Cynthia Osterman)